Cheniere Energy Partners, L.P. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The partnership owns and operates the Sabine Pass LNG regasification terminal and Creole Trail Pipeline and is developing liquefaction facilities at Sabine Pass. Train 1 began producing and shipping commissioning LNG in February 2016.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $67.0 million | $67.5 million |
| Operating loss | $9.5 million | $9.8 million |
| Net loss | $74.9 million | $178.7 million |
| Net loss per common unit | $0.08 | $0.61 |
| Net interest expense | $43.5 million | $42.8 million |
| Operating cash flow | $7.1 million provided | $52.4 million used |
| Capital spending on property and equipment | $714.6 million | $542.1 million |
At March 31, cash and cash equivalents were $9.8 million; current and non-current restricted cash totaled $415.6 million and was subject to contractual use restrictions. Total debt, net, was $12.5 billion, up from $11.7 billion at December 31, 2015. Current debt, net, was $1.8 billion, including the 2016 SPLNG notes due November 2016. Total assets were $13.7 billion and partners’ equity was $613.3 million.
Changes and notable items
- Revenue was broadly stable year over year. LNG revenue was zero in both periods; proceeds and related costs from commissioning cargoes were capitalized as construction testing costs rather than recognized in revenue and expense.
- Net loss narrowed by $103.8 million, mainly because the prior-year period included an $89.0 million loss on early debt extinguishment and a larger derivative loss. Q1 2016 included a $1.5 million debt-extinguishment loss related to repayment of the CTPL term loan.
- Operating and maintenance expense fell from $30.5 million to $17.4 million, principally because Q1 2015 included LNG purchases to maintain terminal cryogenic readiness that did not recur. Depreciation rose to $19.4 million from $14.9 million.
- The partnership entered into $2.8 billion of 2016 CQP credit facilities. It borrowed $450 million by quarter-end, including funds used to prepay the $400 million CTPL term loan. The approximately $2.1 billion SPLNG tranche is intended to refinance the 2016 and 2020 SPLNG notes, which must be repaid or redeemed together under the facility terms.
- Interest costs increased to $192.6 million from $160.1 million, but most was capitalized or deferred for construction; reported net interest expense changed little.
Outlook, risks and contingencies
- Management said Trains 1 and 2 were 98.3% complete, Trains 3 and 4 were 83.8% complete, and Train 5 was 28.8% complete at March 31; each was ahead of contractual schedule. Train 2 was expected to produce LNG as early as mid-2016, with Trains 3–5 expected to start operations on a staggered basis thereafter.
- Management estimated total capital costs for Trains 1–5 at $12.5–$13.5 billion before financing costs and $17–$18 billion including financing costs, owner costs and contingencies. It stated that available commitments, borrowings and expected operating cash flows should fund completion and anticipated requirements. Train 6 construction remains conditional on an EPC contract, acceptable commercial arrangements and adequate financing.
- Six third-party 20-year SPAs cover approximately 19.75 mtpa, about 88% of expected nominal capacity for Trains 1–5. Once all applicable trains are operating, fixed fees are expected to total approximately $2.9 billion annually; customer payment obligations and start dates are subject to contract terms.
- Risks include substantial leverage, construction and commissioning execution, financing and refinancing needs, variable-rate exposure, and restrictions on use of cash and distributions. The new facilities impose covenants, including quarterly limits on restricted payments and future debt-service coverage tests. The partnership reported $9.5 million of CQP and $18.0 million of SPL interest-rate derivative liabilities at quarter-end.
- On April 22, 2016, the partnership declared a $0.425-per-common-unit distribution for the quarter, payable May 13. Distributions depend on available cash, reserves and financing restrictions; the filing does not provide formal earnings guidance.
- Subsidiaries were working with Louisiana’s environmental regulator to resolve self-reported permit deviations covering January 2012 through March 25, 2016. A compliance order and notice of potential penalty was received April 11; management did not expect a material adverse financial impact.
Important facts for investors to verify
- Completion and commercial-operation timing for each train, and whether project costs remain within the disclosed estimates.
- Funding, closing conditions and actual use of the approximately $2.1 billion SPLNG credit-facility tranche to address the 2016 and 2020 notes.
- Cash availability after restricted-cash requirements, construction needs, debt service and distribution covenants.
- Actual LNG sales, commissioning-cargo accounting and operating cash generation as trains enter service.
- Potential financial and operating effects of the LDEQ matter, derivative valuations and related-party service arrangements.
- Potential dilution from Class B unit conversion; the partnership expected mandatory conversion within 90 days after substantial completion of Train 3, then anticipated before April 30, 2017.